China's rising food prices a sign of deeper concerns

By Peter Foster

BEIJING: It is still early morning in one of Beijing's many farmers' markets when a stallholder whips away the sign that was sitting on a pyramid of chicken's eggs.

The lines of haggling housewives barely have time to blink before the sign is put back, but now it shows that 500 grams of eggs that cost 77¢ on Sunday will cost them 79¢ on Monday.

Shopping at a market in Beijing ... many ordinary people feel the official inflation figures underestimate the true rises.Credit:AFP

This is China's spiking food-price inflation in action. The shoppers tut loudly at yet another price rise - eggs are up nearly 50 per cent since the summer - but as the stallholder pays off her supplier she defends herself to her customers.

''What choice do I have?'' she says apologetically. ''The supplier charges more, so I have to charge more. The farmer is complaining about the price of grain and the supplier is complaining about the price of diesel for transport; everyone's complaining.''

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This kind of disgruntlement makes China's leaders very nervous. In the past, inflation has been a catalyst for social unrest, including in 1989, the year of the Tiananmen Square massacre, and it remains a sensitive political pressure point.

Annual food price inflation hit 10.1 per cent in October compared with a year earlier - a level not seen since mid-2007 - deepening concerns that the economy is now starting to overheat after two years of stimulus.

Many ordinary people feel the official inflation figures underestimate the true rises.

''Ten per cent? That's a joke,'' says Li Mingwei, a shopkeeper at Beijing's largest wholesale food market. ''The price of leeks has doubled from last year; cooking oil is up by 25 per cent since the summer and rice by even more. Everything is going up.''

So steep are the rises that in Haikou, in Hainan province, newspapers showed photos of people planting vegetables in municipal flower beds to supplement their incomes.

In a signal of how seriously the country's leaders are taking the inflation threat, last week the Premier, Wen Jiabao, announced price controls on commodities including cotton, grain, oil and sugar, as well as subsidies to low-income families. The measures, designed to reassure the poor, are symbolic, say many analysts, but they do reflect that combating inflation has become the top economic priority.

China has had food-price inflation spikes as recently as 2008. This time economists say the causes are not short-term supply shocks such as a bad harvest or cold winter, but worries about the amount of excess money sloshing through its economy.

''Food prices are the symptom, not the cause, of China's inflation,'' says Tom Miller of the Dragonomics consultancy in Beijing. ''The cause is China's expansionary monetary policy and rising wages.''

The volume of loans released by banks over the past two years has fuelled a worrying number of asset-price bubbles, not just in the soaring property market.

Anger at rising prices is not confined only to the poor, who spend as much as 60 per cent of their monthly income on food and so are disproportionately hit by price rises.

Policymakers are walking a fine line between dampening economic sentiment and putting the credit-fuelled economy on a more sustainable track by raising interest rates and tightening bank lending.

China's sharemarkets fell more than 10 per cent in just four days last week on fears there would be at least two more interest rate rises either side of the New Year.